Paul Romer: Why the world needs charter cities

Summary

This talk discusses how outdated rules can hinder access to basic needs, like electricity, while allowing access to advanced technology like cellphones. The speaker uses examples from Africa, North Korea, and China to show how good rules can foster economic development. By proposing 'charter cities' with modern governance and choices for residents and leaders, the speaker suggests we can create new urban areas that offer prosperity and innovation. The key is developing flexible rules that adapt to new challenges, helping societies break free from inefficient systems and advance globally.

Takeaways

• 💡 Access to technology can be inconsistent: Students like Nelson have cell phones but no access to basic electricity at home.
• 🔌 Bad rules can prevent win-win solutions, such as low electricity prices that cause the electric company to lose money, limiting their reach.
• 📱 The success of mobile networks shows how better incentives can drive wider access, unlike the electricity sector in Nelson's country.
• 🎯 Changing bad rules can be challenging, especially when leaders face protests from groups benefiting from outdated policies.
• 🌍 Global comparisons show how rules can shape development, with North Korea and South Korea being examples of divergent paths due to different rules.
• 🇭🇹 Weak governments can also lead to poor rules, as shown by Haiti’s darkness compared to the Dominican Republic.
• 🚀 China’s rapid growth in recent decades is linked to its rule changes, modeled on Hong Kong’s market economy and special zones.
• 🏙️ Cities offer a scalable model for testing and adopting new rules, providing the benefits of size without the risks of nationwide changes.
• 🏗️ Charter cities can be built with new rules to attract investors, businesses, and residents, creating a win-win for development.
• 🤝 Partnerships between nations can help build successful charter cities, drawing on examples like Hong Kong and Britain’s influence in China.

Q & A

Why does Nelson have access to a modern technology like a cellphone, but not to basic electricity at home?

Nelson has access to a cellphone because the telecommunications sector operates under rules that allow businesses to earn a profit, providing incentives to expand service. In contrast, the electricity sector is burdened by rules that force companies to sell electricity at subsidized prices, making it unprofitable to expand service to more homes.

What does the speaker mean by 'bad rules,' and how do they impact Nelson’s situation?

'Bad rules' refer to regulations that hinder progress by creating inefficiencies, such as preventing companies from making a profit or expanding services. In Nelson’s case, the bad rules governing the electricity company prevent it from expanding power access to more homes, forcing students like Nelson to study under streetlights.

What lesson can be learned from the differences between North and South Korea regarding rules?

North and South Korea provide an example of how different sets of rules can lead to vastly different outcomes. Despite starting with similar conditions, North Korea's restrictive rules have left it impoverished and in darkness, while South Korea's more open and innovative rules have allowed for economic growth and progress.

What does the speaker suggest is the key to changing bad rules?

The speaker suggests that the key to changing bad rules is creating more choices for both people and leaders. By giving leaders flexibility and people more options, it’s possible to develop new rules that allow win-win solutions to emerge without causing friction between different groups.

How does the speaker propose that cities can serve as places for experimenting with new rules?

The speaker proposes creating 'charter cities' with new sets of rules that people can opt into. These cities would be large enough to generate economic benefits but not so large that people are forced into new systems. This allows for innovation on a significant scale while giving people and businesses the choice to participate.

What role does the concept of 'special economic zones' play in the speaker’s argument?

The concept of 'special economic zones' is central to the speaker’s argument. These zones, like those created in China around Hong Kong, provide areas where new rules can be implemented, allowing people and businesses to opt into more market-friendly regulations. These zones have driven rapid economic growth by offering new choices and attracting investment.

Why does the speaker believe charter cities could be a solution for developing countries, especially in Africa?

The speaker believes charter cities could be a solution for developing countries because they allow for the creation of new rules that attract investment and economic growth without coercing people into participating. In Africa, with large amounts of available land and a need for infrastructure, charter cities could offer a way to build vibrant, prosperous communities.

What are the key components needed to establish a successful charter city, according to the speaker?

A successful charter city requires three key components: good rules (enshrined in a charter), choices for people (so they can opt in or out), and choices for leaders (so they can create partnerships and implement the charter). These components ensure that the city can attract investment, businesses, and residents to build a thriving community.

How does the speaker differentiate charter cities from colonialism?

The speaker differentiates charter cities from colonialism by emphasizing that charter cities are based on voluntary participation and choice, without coercion or condescension. In colonialism, control and resources were extracted by force, whereas charter cities are designed to create win-win solutions where people opt into better rules and opportunities.

Why does the speaker believe that rules, like technology, can be shared and improved upon globally?

The speaker believes that rules, like technology, are ideas that can be shared and improved upon globally. Just as technological innovations spread and benefit everyone, new sets of rules that foster progress can be adopted by different regions and adapted to local conditions, leading to widespread economic and social benefits.